With the ups and downs of the market in recent years, many people find themselves with bad credit. Will having bad credit stop you from obtaining a buy to let mortgage? The first thing you will want to do is obtain some specialist advice regarding obtaining a buy to let mortgage with poor credit.
As a starting point, you may wish to avoid lenders on the high street as the majority of them decide whether to grant a buy to let mortgage following a review of a credit score which is automated so it is more likely that any application will be rejected should you choose to go down that route. Specialist mortgage advisers such as The Mortgage Hut are experienced in searching amongst the various lenders who may have criteria that match with your circumstances. They are also much more likely to have access to lenders to which you would not have direct access yourself.
Our experienced mortgage brokers can advise you on obtaining buy to let mortgages with bad credit. The positive news is that more and more mortgage lenders are offering mortgages for buy to let for people with a poor credit history.
There are various factors that could impact the ability to obtain a buy to let mortgage:
- Late payments
Given the fact that it is not unusual for many of us to have forgotten to make a payment or to have missed a payment at some stage, many lenders are willing to see past late payments and are still willing to offer rates which are very competitive. However, there are a few lenders who may decide to dismiss applications from creditworthy applications because of missed payments showing on applicants’ credit files.
Lenders will consider the amount of any late payments and the date the payments were missed on your relevant credit file.
The general rules are that the fewer issues regarding late payments you have, the more opportunities you will have both in relation to accessing lenders and the competitiveness of rates. So, if you have a long history of late payments, this is likely to work against you. However, some lenders will still consider offering competitive rates to people who have a relatively recent late payment history.
Late payments are different to arrears. Missed payments will not normally be registered formally as a missed payment on the credit file until the end of the month. This means that, if a payment was due on the 2nd of the month but was paid on 28th, this would not necessarily be treated as a payment which is late and may not, therefore, be reported to agencies for credit reference.
In addition, an important element is the category of the account for which a payment has been missed. If a payment has been missed on an unsecured account (which could be a phone bill, overdraft for a current account, credit card, or a personal loan), there will not be as much of an issue than if the late payments were in relation to secured credit, the primary example of which would be a mortgage.
- Low credit score
When considering a buy to let mortgage bad credit can show up as a low score on a credit check. Your credit score differs from credit history. Whereas credit history covers past financial dealings ordinarily tracked over the past six years, credit scores are credit reference agency-specific depending upon criteria. Lenders for buy to let mortgages using agency credit scores will internally score your application depending upon various factors such as age, location, credit history and income. This could mean that you could have a reasonable lender score, despite having a variable credit history and even a poor credit reference agency score.
With low credit scores, it is harder to obtain better rates although you will be pleased to hear that many options are still available.
It is worth taking into account that having a significant number of credit applications against your name can sometimes affect your score and leave you open to lender questions relating to why you have so many credit checks on file. Again, an experienced adviser can discuss the pitfalls of this with you and advise you as to how to avoid finding yourself in such a situation.
There are various credit rating agencies online that enable you to see all the information that a lender would see against your name. The information you can access will be insightful and will help you to move forward with a greater understanding as to your current position relating to credit scoring.
- County Court Judgments
Even when applying for a buy to let mortgage with bad credit such as having a County Court Judgment (CCJ) will not prevent some lenders from offering a buy to let mortgage. Every lender will have its own criteria. Usually, the criteria will involve considering circumstances such as the CCJ value, the number of CCJs against your name, the date upon which the judgment or judgments were registered and the extent to which the judgments have been paid.
The date of the County Court Judgement, in particular, plays an important role in determining the outcome of an application. For example, if the judgment was registered over two years ago, it is likely that you will have more options than if the judgment was registered within the last year. That said, some lenders choose to consider potential customers who have had a judgment registered against them only within the last few months.
Should you have any queries regarding this area, our mortgage brokers would be able to direct you accordingly.
- Mortgage arrears
Mortgage arrears occur when a missed payment is not paid for over a month. At that point, the mortgage will be considered as being in arrears.
Mortgage arrears are taken very seriously by lenders when considering whether to grant a mortgage application, particularly if the arrears are for longer than one month, as it highlights a concern that there is a problem with repaying loans and this will, of course, affect an applicant’s credibility at the time of making an application. Such arrears are looked at in a very similar way to any missed payments on other secured loans.
Especially in today’s market, it is quite common to come across landlords who have several mortgages relating to several properties and have fallen into arrears on one of the mortgages for any number of reasons, the most common of which is the property not being let for an extended time period.
As we have seen in other categories, the timing of any such arrears is important. If arrears were very recent, this is likely to work against you more so than if you had arrears several years ago.
It is always important to explain any mitigating circumstances in an application to give the lender the full picture as to why you fell into arrears. If you quickly paid off the arrears, it is worth disclosing these records to show that you were able to resolve the situation and did so in a timely manner.
- Debt Management Plans
Our mortgage brokers can also advise you on how to obtain a buy to let mortgage if you have or have had a debt management plan (DMP).
Lenders will consider applications based on their own criteria. As a general rule, people with a current debt management plan are able to have a few late payments (by a maximum of three months normally), a few defaults (a maximum of two registered within the last two years with any amount over two years old), a few County Court Judgments (again with a maximum of two registered within the last two years and any amount over two years old) and it will still be possible for them to obtain a poor credit buy to let mortgage.
Having a debt management plan can indicate wider financial issues and, should an applicant have had issues with bankruptcy, repossession or any other severe financial restructuring such as an individual voluntary arrangement (IVA), it becomes far harder to obtain a mortgage product until all issues are discharged or resolved.
- Defaults
With applications for a buy to let mortgage with bad credit in the form of defaults on a credit file is a common factor to be taken into account, particularly as they are on the record for a period of six years. When several payments have not been made in relation to an agreement for credit, a notice of default which is a formally written letter is sent with a default usually being registered when between three and six payments have been missed.
The availability of buy to let mortgages with bad credit for borrowers who have had defaults is continuing to improve. It is becoming increasingly possible, therefore, to obtain a mortgage even if you have defaults on your record. The number of defaults and their timing will be crucial considerations for lenders when making a decision regarding your application. Lenders will also wish to determine whether they have been paid. Your deposit figure will also be taken into account.
- Individual Voluntary Arrangement (IVA)
Although it can be difficult to obtain a buy to let mortgage when you have an IVA, it is certainly not impossible. Relevant factors include whether your IVA is current or historical and the date of its registration.
Your options will, however, be more limited. It is important for you to show that you have repaid in accordance with the arrangement. You may be required to provide evidence that you have done this for the last two years.
Usually, if an IVA was set up very recently, you will have more significant issues relating to credit and you will need to have a higher deposit or equity amount in order to satisfy lenders since you will appear a greater risk to them. The deposit figure will usually need to be higher than in other cases in order to counteract the risk of lending in such a situation.
- Repossessions
A number of lenders will think about lending following repossession. Rates can sometimes be competitive as competition is growing between the lenders. The date upon which the repossession occurred and other issues that may be relevant relating to bad credit will be taken into account.
The options available to you will be dependent upon the potential rental income relating to the property in which you are investing and the amount of your deposit.
- Bankruptcy
It is not easy to obtain a buy to let mortgage when you are a discharged bankrupt and many may refuse outright to consider you but there are a few lenders who are willing to think about granting mortgages to those who have previously been made bankrupt. Speaking to an experienced adviser will help you save a lot of time and give you clear guidance regarding your options.
In addition, affordability and age are important factors that will be taken into account by any potential lenders.
Lenders are adapting and becoming increasingly open minded in their approach towards lending to borrowers with poor credit. Competition between lenders is also helping those with bad credit benefit from better rates than previously.
Should you wish to consider your own options and/or discuss any of the issues referred to above, our expert mortgage brokers would be very happy to advise you further.